RBC forecasts £21bn three-year Gars outflow

RBC Capital Markets has predicted Standard Life Aberdeen's (SLA) Global Absolute Return Strategies could suffer a whopping £21 billion net outflows over the next three years.

The brokerage made the eye-watering prediction following last week's interim update from Standard Life Aberdeen, showing Gars had suffered a £5.3 billion net outflow in the first half.

The strategy, which stills holds some £37 billion in assets, has suffered outflows for 26 consecutive months. RBC estimated it recorded a £1 billion outflow in July.

Analysts at the bank noted that a three-year track record is key for marketing, and Gars has foundered against rival mandates run by Invesco and Aviva over this period.

In the three years to 8 August 2018, the Invesco Perpetual Global Targeted Returns fund has delivered an annualised 2% and the Aviva Aims Target Return fund has delivered 0.3%, versus Gars' -1.6%.

'We revise our (Gars) net outflow forecasts to be £9 billion for 2018, £7 billion for 2019 and £5 billion for 2020,' RBC analysts Gordon Aitken and Kamran Hossain said in their note.

The team had previously forecast an £18 billion outflow.

RBC based its forecast on Bloomberg flow data, which had correctly predicted Gars would suffer an outflow of £10.7 billion in 2017.

Increasing impatience with multi-asset funds undershooting net return targets could increase the rate of redemptions the duo noted, pointing out that Invesco and Aviva's strategies had also missed targets.

'Retail investors are not so impressed with the returns from Aims because simple strategies like passive or balanced funds are doing much better and Aims as a retail proposition awaits a bit more market disruption and people actually losing money on simpler investment strategies,' the pair said.

'We expect that investors (particularly retail investors) are growing tired with multi-asset funds as they continue to miss their target returns.'

Commenting on the outflows in last week's results, a spokesperson for Standard Life Aberdeen said: 'While Gars' performance is behind benchmark over one and three years and behind its target over one, three and five years, it has continued to operate within the targeted volatility range, which is a key element of its design.'

They added that Gars could return to a positive three-year absolute return in 2019 if it registers an absolute return for the rest of the year.

However, Aitken and Hossain do not believe this will be enough to turn sentiment.

'We do not believe consultants will see this as a reason to push clients into Gars over the several other competing multi-asset funds which now exist,' the duo said.

Cost-saving boost

In a 14-page research note on SLA, RBC reiterated its 'outperform' rating on the company, despite downgrading its price target from 450p to 400p in reflection of a lower growth outlook for asset managers.

Aitken and Hossain outlined a number of factors explaining why they continued to predict outperformance relative to peer group, praising the strategic shift in the business this year.

'The merger and subsequent insurance disposals have resulted in a more pure-play asset management company, deserving of a higher multiple in line with asset management peers,' the pair said.

'Further, surplus capital will likely be utilised to conduct asset management M&A in the US, thereby making the company even more global and asset management in nature.'

Aitken and Hossain also expect the company to exceed cost saving expectations.

'Following the merger with Aberdeen, we think it is likely that the revenue attrition will be less and cost savings will be more than expected by the market.'

'[However] we acknowledge some profitability loss because of themerger, but still anticipate cost synergies to exceed companyguidance by a significant margin.'

In the final part of our interview with Paul Feeney, the Quilter chief executive declares that the government has 'left the ring' on savings policy, rounds on robo-advice, and reveals his own experience of the DB transfer market.

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